Wine site Lot18 flexes its muscle - in the name of customers

Published 4:00 am, Friday, June 3, 2011

Philip James founded Snooth and is now behind Lot18, which sends out wine deals to 300,000 registered users.

Philip James founded Snooth and is now behind Lot18, which sends out wine deals to 300,000 registered users.

Photo: Eric Risberg, AP

Wine site Lot18 flexes its muscle - in the name of customers

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For better or worse, the wine industry can't take its eyes off Lot18.

The online site, launched earlier this year by Philip James, founder of wine site Snooth, has become the retail model to ignore at your peril. It's becoming the Groupon of wine. (Take that as you will.)

In some ways, Lot18 functions no different than so-called "flash" sites like Cinderella Wine or WineWoot, offering brief deals that promise to vanish within a day or two. But if most flash sites tout excess inventory, Lot18 has turned heads for offering wine that no one expected to see this way.

Perhaps the biggest coup came when powerhouse Williams Selyem appeared in my inbox with an offer for a 3-bottle pack of 2008 Russian River Valley blend at around $50 per bottle - not much of a deal versus its $46 release price, but a mighty big fish. Another coup: Nicholas Joly's 2007 Coulee de Serrant - one of the most emblematic wines of the Loire Valley. Though perhaps I should call it "iconic" - Lot18's favored buzzword.

"It sort of proves that what we do isn't about liquidation," James says.

The New York operation, which claims 75 employees, has arrived like a bullet; it raised $13 million in the past year. James won't disclose revenues, but at one point he said the site was selling $1 million in wine each month.

A great deal?

What makes Lot18 a phenomenon is its sheer market power. It claims to have 300,000 registered users (earlier this year the number quoted was closer to 160,000) - all of whom signed up for the "invitation-only" site using a provided link. Several e-mail offers arrive daily.

That number is at the core of Lot18's power. Since there's no fee for offering a wine, James claims his service is far more cost-effective than advertising or submitting samples to a wine magazine - or, presumably, a newspaper. "We're the most efficient way to let a winery get in front of that many people," he says.

But is it a great deal for those selling their wine?

Lot18 isn't actually selling that wine. It serves as a middleman, taking a chunk of profits.

Wineries and distribution companies handle the often slippery job of compliance and ship the wine, typically covering some shipping costs themselves. Imported wines are sold through a third-party retailer.

Though the Williams Selyem deal raised eyebrows, few wineries are likely to get that sort of treatment. More likely a winery will get, at best, the price it might get from a distributor, about 40 percent less than if it sold the wine direct.

Often there's a slight loss involved, either because of shipping costs or because of steep discounting. As one winemaker bluntly put it, "You lose money, or you just break even if you're lucky."

That trade-off is one that wineries, scrambling to find new customers, are willing to take.

"It's one of those things where maybe you take a little bit of a loss," says Dave Corey of Core Wines in Orcutt (Santa Barbara County), who has sold two wines through Lot 18, "but then you get the promotion."

That promotion is Lot18's hammer.

After months of parsing their e-mail offers, I've made a daily habit of interpreting them.

Often Lot18 simply seems to be a release valve for inventory. You might encounter a wine like the 2007 Cristom Sommers Reserve; to find that famous Oregon winery might be a surprise, but it's the high end of the lineup and from a generally panned vintage.

That particular offer came from one of the site's high-profile curators, Ted Farthing, who began his note, "Back when I managed the Oregon Wine Board ..." Industry ties are evidently a selling point.

But the level of hyperbole is hard to match.

Bold sales pitches

While critic reviews are always subject to creative editing - call it the Great Ellipsis - Lot18 has a panache with the practice, often eliminating scores below 90, or bypassing a rating for a blurb on the vineyard or winemaker - not the specific wine.

To be fair, this more-info-is-better approach can't really hurt. But at times it stretches credulity. An offer for the 2005 Palmieri Trio from Napa's Stagecoach vineyard included a 92 rating not by a magazine or newspaper, but by Snooth, James' previous startup, which received scrutiny for, among other things, evidently scraping data from other sites.

The Snooth scores have tapered, but what remains is namedropping that at times seems like a version of "Six Degrees of Kevin Bacon." Take the 2006 Stylus from Franciscan, the Napa label controlled by wine giant Constellation Brands.

The connection? Silver Oak's Justin Meyer and Ray Duncan briefly made wine in the 1970s at Franciscan, then near bankruptcy. (The page is gone from Lot18's site, but view a cached version at bit.ly/lt2gU5.)

James defends such ties to famous names as a better option than flooding customers with winemaking details: "It's really hard for the average person to understand that. But people will understand that it's the same guy who made Robert Mondavi's Cabernet."

And some swaggering claims can be justified, as with the 2004 Giuseppe Mascarello Barolo Monprivato ("A Legend in the Making"), which received 96 in the Wine Advocate.

Whether or not its sales approach is appealing, Lot18 has found a niche to exploit. And James insists that the occasional deal from an A-lister is well matched by the potential for "discovery" of unknowns.

Many wineries badmouth discounting while cutting deals out of the sides of their mouths. So I suspect that wine is headed exactly where fashion went as the outlet mall matured into a second tier for those who wanted access to Gucci or Prada: an effective way to hunt your future customer.

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